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Gold/Mining/Energy : Joy Global

JOY 28.30

0.0%

Apr 13 5:00 PM EST

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From: Dennis Roth	8/30/2007 7:51:32 AM
	of 28

Timing of US coal recovery remains uncertain August 30, 2007 Goldman Sachs What's changed Following disappointing 3QFY07 earnings and guidance, we are lowering our 2007 – 2009 EPS estimates to $2.69/ $3.35/ $3.85 from $2.87/ $3.65/ $4.20 as we now expect slowing US growth to push out the US coal market recovery. Management’s next 12 months’ EPS guidance is 10% below last quarter’s NTM guidance and 14% below our prior estimate. JOYG 3Q EPS of $0.66 was below GS/ consensus estimates of $0.71/ $0.70, with weaker surface mining sales the primary driver of the variance vs. our estimates. We are lowering our price target to $49 from $53 prior based on 14.5x our 2008 EPS estimates. Implications We’re maintaining our Sell rating on JOYG as the outlook for a recovery in US coal (~50% of profits) remains murky in the near term, particularly if US economic growth surprises to the downside. However, new guidance is now more conservative, with recent supplier issues expected to be resolved by year-end and international mining equipment markets remaining strong. Surface mining equipment demand continues to outstrip supply, and management believes that its 2009 shovel capacity could be sold out by the end of 4QFY07. Valuation JOYG is now trading at 12.8X 2008 EPS, a 6% premium to closest peer BUCY versus a 5% premium historically. We continue to prefer BUCY over JOYG near term given upside potential to BUCY estimates from greater DBT merger synergies. Key risks A deeper or longer period of softness in US coal is a primary risk along with higher material costs and production and supplier bottlenecks.

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